Power Failure: The Rise and Fall of an American Icon

by William D. Cohan

The generation and distribution of electricity? GE. The lightbulb? GE. The jet engine? GE. The X-ray machine? GE. The world’s first radio broadcast? GE. The first home television sets? GE. The first electric cars? GE.

But GE, and its extraordinary success after some initial financial hiccups, was actually more the doing of another restless entrepreneur, Charles Albert Coffin, whose visionary thinking and aggressive acquisitions drove the company forward in its early years. Coffin doesn’t get nearly the accolades, or ink, of Edison, but it turned out that Coffin was by far the superior businessman, a gene Edison lacked.

“Menlo Park was naturally the Mecca of those who looked upon Edison as the great inventive hero of the time,” Insull recalled years later. “It must always be looked at as the birthplace of the electric light and power industry.”

In 1893, Edison sold his stake in GE for a reported $1.5 million (around $430 million in today’s dollars). He was over the whole electricity thing. “I have a lot more new material on which to work,” he continued. He said all he cared about General Electric was to get “as large dividends as possible from such stock as I hold. I am not businessman enough to spend my time at that end of the concern.”

Cordiner wasted little time in laying out his plan for massive decentralization as a way to empower a greater number of GE executives to run their own businesses. He split the behemoth that GE had become into twenty-seven independent divisions comprising 110 small companies, each the perfect size “for one man to get his arms around.” Each leader would run his own show, would make day-to-day decisions, would propose his (rarely her) own budget and marketing strategies, would be able to approve capital expenditures up to $200,000, and would basically be “freed up,” as Cordiner liked to say, to make long-term strategic decisions about the direction of the business.

“There is probably nothing worse in business than to work for a boss who doesn’t want you to win. This can happen anywhere, at any level—and probably happens more often than we think. Until I came to work for Dance, I had never had it happen to me.”

A plant manager in Cincinnati kept around a list of deceased former GE employees who had worked in the factory in case Jack showed up and asked to see progress in job reductions.

Asked what he meant by “wallowing,” Jack once told me that meant to make sure the staff and the team had a chance to speak their minds. “Take time to wrestle acquisitions, divestitures, labor negotiations, etc. to the ground,” he said. “Business is full of paradoxes. Wallowing is encouraging people to hang out in the paradoxes and sort them out.”

Jack’s deal with Thomson was particularly brilliant and would pay dividends to GE for decades. His idea was to swap a highly competitive business he hated—the manufacture of televisions—for a business he coveted—medical equipment.

“Every planning meeting Jack ran was always the same,” Wendt recalled. “He told everyone else to cut costs, and he’d tell me to grow the business.” GE Capital became the nation’s first, and biggest, nonbank bank. There were no GE Capital branches. There were no deposits. There were no depositors. There was little, if any, regulation.

In the 1970s, GE Credit made around $45 million, or roughly 4 percent of GE’s pretax income. By the end of the 1990s, GE Capital was providing nearly 40 percent of GE’s pretax income, and by 2003, it was providing more than half of GE’s pretax net income. It’s fair to say that without the profits that GE Capital was churning out year after year, Jack would never have been named Fortune’s “Manager of the Century” and GE would never have become the world’s most valuable company.

Years later, from the comfort of his Florida home (and his post-GE life), Wendt was more candid about the use of GE Capital’s assets to smooth GE’s earnings. “We did, we did,” he said. “We were able to. I always had a lot of things available for the quarter. I had to because I knew he”—Jack—“was going to call up and say, ‘I need another $1 million or another $2 million or whatever,’ and so I’d go over to [James] Parke and I’d say, ‘Okay, let’s do this one and this one.’ ” He said under Jack, GE “always” made its numbers. “Making your earnings was just life to us,” he continued. “We all knew it. [Jack] was the one that had to get it done, and we knew he had to get it done, and so it was part of the company culture, clearly. Make your numbers. Make your numbers. And stretch. The guys did it.”

“Did we create income because somebody else couldn’t deliver in a quarter?” he asked. “Absolutely. There’s nothing wrong with that. We didn’t do anything illegal ever. We had financial flexibility [at GE Capital] that, if you’re making washing machines, you don’t have. You can monetize assets. You can sell assets. You can harvest assets. And that’s what we did on a regular basis. We securitized assets. We used our financial smarts to maximize the assets, and when called on to deliver income, we did it on a regular basis. And we had a record that’s unparalleled year after year.

he told me that he “loved them to pieces” but that he had made “a mistake” when he gave each of them a bunch of GE stock when he first became CEO. Given how well the stock performed under his tenure, each of the kids ended up with something like $50 million in GE stock, half when they turned thirty-five, the other half when they turned forty-five. Each of them quit their jobs, he told me, as a result, despite two of the four going to Harvard Business School and one going to the Harvard Graduate School of Design. “They turned out differently than I’d hoped,” he said. “We’re close. But they got too much money. I thought half at thirty-five and half at forty-five was the right thing. If I had to do it all over again, I wouldn’t have given it to them. Who would know?”

“No,” he said. “I’m not manipulating earnings. Let me tell you how it works. I had stretch targets. You’ve heard of a stretch target? We never made a stretch target that was an internal target. Everybody missed somewhere, but the stretch target was always five percent more than we promised Wall Street. I’m not going to promise Wall Street my last child, okay? You have to be an idiot to miss a Wall Street estimate. You tell them what the fuck you’re going to make, two weeks or four weeks in advance. I had forty businesses. If I can’t get a penny here or a penny there for a shortfall, then I’m an idiot. . . . Everybody’s got a kitty in every level in every company.”

Manufacturing processes that achieved Six Sigma—a reference to a statistical model, based on standard deviations on a normal curve—had 3.4 defects per one million manufacturing steps. Said another way, at a Six Sigma level of manufacturing prowess, 99.99966 percent of a company’s products or services were made or provided without flaws. Most industrial companies are satisfied with around 97 percent success. Very few companies even attempted a Six Sigma level of performance.

With the implementation of Six Sigma, 60 percent of eligible employees’ bonuses were based on financial results and 40 percent were based on Six Sigma results. Stock-option grants were given more generously to the Six Sigma Black Belts.

His first meeting as head of the jet engine business was with Bob Crandall, the powerful and notoriously cranky CEO of American Airlines. McNerney urged him to buy the new GE engine. Crandall said he wouldn’t buy it. American Airlines was buying the Rolls-Royce engine. McNerney told him the GE engine was superior. “Well,” Crandall replied, “you’ve got to go fix that fucking engine before you sell it to me, and fix your boss when you do that.”

His officemate was Steve Ballmer, who had graduated from Harvard the year before Immelt had graduated from Dartmouth. “We had Formica desks that touched each other, and we would play paper-wad basketball every day,” Immelt remembered. “We were complete fuckwads. That’s the best way to say it.” He said Ballmer was a blast. “We’re like a Dilbert cartoon,” he said. “Both of us were incorrigible malcontents. I wasn’t ready to be a grown-up. I was partying at night. We had great fun wearing Depends to work” at the office.

When his father asked him why he was joining Microsoft, he reportedly answered, “Right now, Dad, I don’t know, and I don’t care. All I do know is, if I accept this job at Microsoft, I’ll never have to look at another box of brownie mix again!”

People can help you, but leadership is one of these great journeys into your own soul. It’s not like anybody can give you the answer of how to do it.”

What made Immelt a consensus finalist to succeed Jack was his ability to supercharge the medical systems business during his four years at the helm. Revenues doubled to $8.4 billion and net income increased to $890 million, from $400 million. “When Jeff took over Medical Systems, he let the sunshine in,” Jack said.

Jack’s answer impressed him. “Strategic planning is critically important to a business,” Jack replied. “But the business leader has to own it, and what’s happened is they’ve just all delegated responsibility to a group of people who were in the strategic planning function, who work on making prettier and prettier charts to just impress all the other strategic planning bosses, and business leaders no longer own a strategic plan, and they’re not doing the strategic thinking the way they need to.” Cote said Jack’s answer made a lot of sense.

That’s when Cote’s colleague said, “You know, Jack, he never wanted to send out the request in the first place. He had recommended against it, and all of us on the staff and Tom Hartnett, our boss, said no, we were gonna start using this stuff in the future, so we still needed to do it.” Jack was taken aback. “So you just took the knife for those guys?” he asked. “Well, I didn’t view it that way,” Cote replied. “You don’t throw in your friends on something like this. You just don’t.” Jack kept shaking his head: “Wow, geez, wow. That’s something. Wow. Okay.”

Dammerman pulled him aside for a conversation. “You have no idea how much good you did your career with everything that happened,” he said. Cote told him he didn’t really see how, given the berating he had received from Jack. “Well, the first thing was the way he yelled at you in his office,” Dammerman said. “He has made vice presidents cry, and you never got flustered. You just kept explaining the story and why it was done. He really admired how you stood up. Then when he found out tonight that you didn’t throw in your friends . . . Nothing but good is going to happen to you from now on.”

Nayden remembered the meeting clearly. “Jack walks into the boardroom,” he recalled. “We haven’t even said good morning, and he goes, ‘Are you guys fu-fu-fu-fu-fucking kidding me?’ That’s how the board meeting started. Two hours later, after listening to the discussion and after asking a hundred questions, having everybody around the table ask questions and answer them, Jack goes, ‘Okay, let’s do it.’ He always had a point of view, but he also had twenty questions and he always kept an open mind. And he wanted to engage with the people proposing to invest, proposing to take risk. He wanted to test the mettle of your argument, and then he would make up his mind.”

Keith Sherin, the GE CFO, defended the practice, asking Fox why investors would want GE to report inconsistent earnings from quarter to quarter if it could be avoided. “It just doesn’t make sense to us in managing a business,” he said.

according to Jane’s filings. The couple’s monthly expenses were more than $126,000.

Jack read everything sent to him. He knew more than you. “When you went up there, you had a discussion that exhilarated you, and you learned something, or he told you something you didn’t know,” he continued. “And you had to go back and figure out the answer to his question, and it lifted all of us.” But it was different working with Jeff. “It was like walking into a cold shower when you walked into your first meeting with Immelt, because he didn’t read the deck,” he said. That seeming indifference was noticed. “He lost us,” he said. “And this is one thing that I know as a leader: if you want your team’s respect, you’ve got to read their work. I think Jeff lost most of us in the first meeting. We all turned to each other and said, ‘He didn’t read the deck.’ ” There would be consequences.

He desperately wanted to reduce GE’s reliance on GE Capital, but he never could sever the Gordian knot. Despite his efforts, GE Capital’s percentage of GE’s overall earnings kept growing and growing, eventually reaching 51 percent of GE’s $15 billion 2003 profit. “Partly that was because our Power business”—previously the business that was biggest contributor of profit to GE—“had cratered,” Jeff remembered.

Whereas Jack had three or four initiatives in twenty years—Six Sigma, going global, and developing more service revenue—he was never “an idea-a-minute guy,” as one former GE executive explained to me. Jeff was always coming up with new ideas, new initiatives. He wanted to out-initiative Jack.

For all his efforts to make GE a visionary company, Jeff was developing a blind spot as a CEO, and he was losing (or driving out) the executives who dared to tell him the truth as well as the seasoned veterans who could help him navigate a crisis.

Instead of the team of rivals that had surrounded Jack, Jeff had created a team of sycophants, aided and abetted by the unintended consequences of a highly lucrative supplemental pension program, which had the ability to silence even the most outspoken GE executives, unless, like Calhoun, they left.

“Jeff did not surround himself with a level of fiercely intelligent people who could—and would—on a regular basis be combative with him. People were combative with Jack. Jack loved it. Jack wanted it. He wanted to be in a fight. He wanted to have an intellectual throwdown. And Jeff didn’t. He wanted to participate. He wanted to read out his conclusions and he did. If you look at the who’s who of the GE leadership team and compare them, they were people who understood and were willing to debate, and debate is what went away, I think. Debate no longer occurred.”

“Here’s the screwup: you made a promise that you’d deliver this, and you missed three weeks later,” Jack also said. “Jeff has a credibility issue. He’s getting his ass kicked. He apologized.”

Jeff called Jack after Jack’s outrageous CNBC appearance and told him, “Look, you’re dead to me. You’re dead to me.” He said Jack “chose not to be a true friend.”

“The last thing I’d say about leadership, Charlie, is that in some ways it’s an intense journey into yourself,” he said. “It’s about how much you want to learn. It’s about how much you want to give. It’s about personal change, and just being willing to kind of renew yourself almost every day. I take every criticism personally, and I go to bed at night and [say to myself], ‘Gosh, I’m such failure.’ And I get up the next morning and say, ‘Hello, handsome. Let’s go get them.’ You’ve got to be able to renew yourself. You’ve got to be able to renew yourself and go fight the battle again, you know. If I stand up in front of 320,000 people and say, ‘Oh, god, I just don’t know what we’re going to do today,’ [that’s a disaster]. [Instead] you stand up and say, ‘We’ve got it nailed. This is our best day. Let me tell you why.’

period. In the 1990s, he said, digging at Jack, “anyone could have run GE and done well.” He wasn’t done. “Not only could anyone have run GE in the 1990s, his dog could have run GE, a German Shepherd could have run GE,” he said. By contrast, he continued, GE’s future “will be really, really, really hard,” and it and the country should focus on “clean energy, health care, and education.”

Steve Burke decided he wanted to run NBCU. That meant dispensing with Jeff Zucker, whom Jeff had appointed to take over from Bob Wright. “Zucker was the wrong guy for the job,” Burke told me. “Jeff is very talented at saying, ‘That font should be larger’ or ‘The red there’ and ‘You shouldn’t have four people, you should only have two.’ But he was not an executive.”

He argued that Comcast was a better owner of NBCU than GE was. “They were able to take the media assets, the content, both at the network and the cable channels, and lever it for better pricing with all the other providers, ten times better than any deal we ever cut with Comcast themselves,” he said. “They had better information and they did a better job of running it. There’s no question about it for me.”

Burke told me, “It did feel scary being on the bad side of GE. No one would’ve ever guessed that all this stuff happened. But we saw firsthand how these guys ran stuff, and they screwed this company up like you can’t believe and then sold it for a third of what it was worth and then got pissed off because they did it and we kind of exposed them. As soon as we came in, we started to turn everything around, and I think he was kind of embarrassed, and he should be.”

“What became apparent to me over time,” one former GE executive told me about Jeff, “was he never really grew from the national sales manager that he was at Plastics. That was his core competency. It’s what he always talks about on the sales side. So the full P&L capability that you’ve got to have to be the successful CEO—that Jack had, Cote had—where they understood how their initiatives or actions, everything they did, came back, connected to the numbers, the value creation, [Jeff] couldn’t connect the dots on that stuff. It’s shocking. I don’t know how people didn’t see it. But he was national sales manager, parading, masquerading as a CEO.”

The problem for Jeff remained a lackluster stock price. It was down roughly 40 percent during his time as CEO, while the S&P 500 stock index was up 50 percent. Worse, the stocks of GE’s industrial competitors had been on a tear. United Technologies’ stock was up 200 percent; Honeywell’s stock was up 125 percent. Something had to give.

For that matter, most GE board members I asked to be interviewed for this book steadfastly ignored my requests, a sign of true cowardice.)

Ralph Waldo Emerson’s adage about coups: “When you strike at a king, you must kill him.”

In 2001, Jeff was handed the most valuable, most respected company in the world to manage, and in 2017 he handed off to his successor a company badly damaged, “a company on fire,” as one executive told me. Jeff was “imperial” and “delusional,” many people explained. But the failure of the GE board to rein in Jeff’s behavior and to question Jeff’s judgment more deeply, or to push back against his imperial and delusional tendencies, together stand as one of the greatest corporate governance abdications in American history. The abject failing of the GE board is yet another example of the old Wall Street adage that “success has many fathers and failure is an orphan.” As the shit was hitting the fan, Jack Brennan, the lead director for the last years of Jeff’s tenure, couldn’t get out of the place fast enough. And he’s never said a word about what went wrong at GE and why he did nothing to prevent it from happening.

Jeff had often traveled “for much of his tenure” around the world in a private jet, with a second jet tagging along nearby in case of mechanical failure in Jeff’s primary jet. “The two jets sometimes parked far apart so they wouldn’t attract attention,” the Journal reported, “and flight crews were told to not openly discuss the empty plane.”

According to the Journal, the empty plane’s manifest referred to a nonexistent passenger—either “Robert Jeffries” or “Jeffrey Roberts.” The paper reported that the extra plane added about $250,000 to each round-the-world trip at a time when Trian, and other investors, had demanded that GE cut costs.

Dave Calhoun, the CEO of Boeing, has been telling people about what happened at GE: “The GE board let Jack make all the decisions and he generally made the right ones; it let Jeff make all the decisions, too, and he generally made all the wrong ones.”